Susa, a single taxpayer, owns and operates a bakery (as a sole proprietorship). The business is not a specified services business. In 2020 the business pays $60,000 in W2 wages, has $150,000 of qualified property, and $200,000 in net income (all of which is qualified business income) Susan also has a part-time job earning wages of $13,600, receives $3,400 of interest income, and will take the standard deduction. What is Susan qualified business income dedcution?
All amounts are in $
Computation of QBI deduction & Taxable Income
Net Income = $200,000
Add : Part time wages = $13,600
Add : Interest income = $3,400
Less : Standard deduction = $12,400
Taxable Income before QBI deduction = $204,600
QBI deduction computation
It is the least of 1 & 2 (So $30,000) (This is further restricted by 20% of Taxable income before QBI deduction i.e., 20% of $204,600 = $40,920)
1. 20% of QBI = 20% of $200,000 = $40,000
2. Higher of a & b (So $30,000)
a. 50% of W2 Wages = 50% of $60,000 = $30,000
b. 25% of W2 Wages plus 2.5% of qualified property = 25% of $60,000 + 2.5% of $150,000 = $18,750
The QBI deduction will be $30,000
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